What Is The Best Disability Policy?

Many consumers often make the mistake of choosing an inexpensive disability insurance policy and ignoring the written terms and provisions that are frequently found within inexpensive policies. Inexpensive policies can often end up costing the disabled insured a lot of benefits once a claim arises because of restrictive provisions that were initially overlooked but not discovered until a claim was filed. By then, it’s too late to do anything about it.

What Makes a Disability Insurance Policy Inexpensive?

One of the reasons a policy may be inexpensive is because the terms and provisions of the contract may not pay benefits in as many claims situations as other available policies. There may be many provisions required to be met in order for benefits to begin and or continue. The disability insurance market is a dynamic industry. Changes are frequent as companies compete with each other for new business. One of the things that is consistent is that the inexpensive policies might become the most expensive policies in a claim situation because benefits are not paid out if at least one of the many required conditions were not satisfied.

An Example Of A Commonly Overlooked Provision

For example, some policies will only begin paying benefits once the insured has been disabled for the entire elimination period, consecutively. Better polices can allow for a more generous accumulation period in terms of how they allow to number of disabled days to accumulate. This way, the insured does not have to start a new waiting period just because he/she tried going back to work for a day. A policy with an accumulation period allows you to collect benefits much sooner and more easily than a policy without an accumulation period.

Recovery Benefits, A Major Factor

Additionally, upon recovering from a disability, some polices will pay recovery benefits if you are earning less than 80% to 85% of your pre-disability earnings, depending on the policy. Business owners would typically have to build the business back up again following a period of total disability. Better policies could continue to pay benefits even if the insured business owner went back to work full time and was able to perform all previously able duties.

Remember, you buy a disability policy to protect your income. Hopefully you get one that keeps paying you until you financially recover, not just until you physically recover. The best disability insurance policies available allow the residual disability benefit rider to pay benefits for the entire benefit period for any income loss attributable to the disability. That could be well beyond a one or two year recovery benefit period sometimes offered by inexpensive disability policies.

The alternative to choosing the inexpensive policy is to choose the best disability insurance policy on the market. The best policy may vary depending on who you ask. However, one might say that the best policies are the ones that will pay you your monthly disability benefits when you need it the most, when you suffer a long term illness or injury that prevents you from earning an income in your own-occupation.

For many people, the best disability policy would continue monthly disability income benefits even if they choose to find work in another occupation so long as they cannot work in their original occupation. In my experience, I find that most working professionals would choose to work if they can. Many disability insurance policies cease or reduce benefits if earned income is flowing in from new occupations. The best policies will keep disability income benefits coming in full even if another income is earned so long as the insured is not able to work in his or her original occupation at the time of disability

Why Do Company Ratings Matter?

The contractual promise to pay benefits is only as good as the financial strength of the company that makes that promise. Consumers are gifted with a plethora of information from third party sources that evaluates and grades insurance companies. A.M Best is a very popular third party organization. The highest rating possible is “A++”. This is the highest out of 16 ratings. Lesser rating of “A+” or “A” are also good but is one or two “ball parks” away from the best rated at “A++”. A Comdex score is another popular third party ranking system. Comdex is a composite of all major ratings (minimum of two ratings) that a company has received.

The Comdex percentile ranks the companies on a scale of 1 to 100 (with “1” being the weakest and “100” being the strongest), in relation to other companies that have been evaluated by the four independent ratings services (A.M. Best Company, Standard & Poor’s, Fitch and Moody’s). The result is a number that can be used to gauge the relative strength of a company.

An individual’s working career may last for 30 years or more. During that time, a few recessions and economic shifts may occur.

Those companies that are highest rated are often the strongest financially. It is those that are highest rated that will most likely be able to keep their promise to pay, even during the worst of the economic cycles.

Summary

While it always depends on a client’s unique needs, in my opinion, the best disability policies generally contain terms and provisions that do not allow the insuring company to increase cost for the same coverage, cannot change the terms of the contract and cannot drop coverage as long as the policy premium is paid on time. What was once within budget may become a big disappointment in the future if the cost is increased at a later time. The terms of a contract may be acceptable at the time of initial purchase but if those terms are allowed be altered; any future alterations may not be acceptable.

The provisions that do not allow the insuring company to increase cost, drop coverage, or change provisions at a later time are both the Non-Cancellable and Guaranteed Renewable provision.

In my opinion, one of the best disability insurance policies is an individually owned policy, where the insured and the policy owner is the same person. The insured does not have to work for a particular organization in order to keep his or her coverage. The insured does not have to work in a certain occupation.

The insured has full portability with this type of policy. The insured can change employers, can change jobs, can change careers as desired and the policy can go with him or her where ever desired. The insured will not have to be or continue to be a member of a certain organization. The insured just has to pay for coverage on time and the policy benefits will be available for when it is needed.

Jack Le, CFP®, CLU® is a Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. Financial Balance Group, LLC is not an affiliate or subsidiary of Guardian. Disability Insurance Quotes is the brokerage arm of Financial Balance Group LLC.

The information displayed on this page are the opinions and views of the author, and are not necessarily the opinions and views of The Guardian Life Insurance Company of America (Guardian), or any company that is an affiliate or subsidiary of Guardian.

Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA. BLICOA is a wholly owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, NY. Product provisions and availability may vary by state. Optional riders are available for an additional premium.